Simon Coulthard October 22, 2024
Did you know that while 60% of executives believe their business is investing enough time and resources in compliance, only 31% of consumers agree?
That’s according to a consumer intelligence survey from PwC, the world’s largest professional services network. This gap presents a valuable opportunity to improve compliance efforts and build trust with customers.
Compliance audits play a crucial role in closing this gap, and this blog will guide you through what you need to know.
Just below, you’ll find the compliance audit definition.
But keep reading to explore the different types of compliance audits, how they differ from internal audits, and the key stages of the compliance audit process.
A compliance audit is a systematic examination of a business’s adherence to regulatory obligations.
Otherwise known as a regulatory compliance audit, it can encompass various aspects of the organization’s operations, including data protection, environmental sustainability, health and safety, labor and employment, and IT systems.
The purpose of a compliance audit is:
→ to ensure that internal systems are in place to meet regulatory expectations, and
→ that these systems can be demonstrated during a government or regulatory audit.
Furthermore, compliance auditing help verify that internal policies, systems, and processes are being consistently followed by employees.
Think of compliance audits as that mandatory “let’s not get fined” checkup every business should conduct regularly.
These regulatory audits serve as an effective means to identify compliance gaps, reduce risks, and issues that could lead to problems down the line.
This extends to the compliance of third parties, which 48% of businesses find challenging to assess (MetricStream).
Work to at least build a yearly compliance audit strategy so that you can proactively address compliance issues before they escalate.
Done well, these audits will help to avoid costly penalties and increase ESG ratings while maintaining trust with customers and stakeholders.
Compliance audits are normally categorized based on their area of focus.
Here are some key types:
By understanding the different types of compliance audits, organizations can effectively target their efforts and enhance their overall compliance posture.
Since it would be legally questionable to delve into a real-world compliance audit example, let’s consider Tyrell Corporation, a fictional cloud storage company that recently conducted an audit to assess its compliance with GDPR.
The audit kicked off with analysis of their privacy policy, which revealed outdated language that lacked the clarity on data collection practices expected by this legislation. This promoted them to create a better privacy policy that improved the transparency of communication about data practices and user rights.
The corporation then conducted interviews with the Data Protection Officer (DPO) and other key staff. This revealed a previously hidden gap in employee knowledge regarding current compliance requirements, motivating the company to set up training sessions around data privacy best practices.
Further investigation revealed that the Tyrell Corporation needed to improve their consent management processes. Their customers were struggling to understand exactly what they were consenting to, meaning that they needed a better framework. The audit team recommended a number of changes that would make the consent process more translparent and user-friendly.
They also analyzed account login credentials, finding that too many employees had access to sensitive data - a position that increased the likelihood of a data breach.
Following the audit, the company created an action plan for addressing the issues they discovered, and they also scheduled follow-up audits to track the effectiveness of these measures.
While compliance audits can be conducted internally or by external auditors, “internal audits” is actually a separate category that is distinguishable in key ways.
Each serves a unique purpose and has distinct objectives, focus areas, and scopes.
Here’s a breakdown:
| Internal Audits | Compliance Audits |
Purpose | Evaluate the effectiveness of internal controls, risk management, and governance processes. They help ensure operational efficiency, and identify areas to improve. | Evaluate adherence to external regulations, laws, or internal policies related to specific areas, such as data privacy, environmental standards, or financial regulations. |
Scope | Broad and encompasses various aspects of the organization, including financial processes, operational efficiency, IT systems, and compliance with laws and regulations. | Narrower, specifically targeting compliance with relevant laws and regulations. For instance, a privacy compliance audit would assess how well the organization complies with GDPR or CCPA. |
Responsibility | Typically carried out by an internal audit team or department that reports directly to senior management or the board of directors. | Can be conducted internally, but are often performed by external auditors or regulatory bodies to provide an unbiased assessment of compliance status. |
Frequency | Usually conducted on a regular basis (e.g., quarterly or annually) as part of a comprehensive internal control framework. | Frequency depends on regulatory requirements or business needs, and may be conducted more often in high-risk areas. |
In summary, while both internal audits and compliance audits aim to improve organizational performance and mitigate risks, they differ in focus, scope, and how they are conducted.
Compliance audits can certainly be performed internally, but they typically hone in on regulatory adherence rather than the broader internal controls assessed in internal audits.
Compliance regulations can vary significantly depending on the industry and geographic location. Here are some common types:
Understanding these regulations is essential for businesses to operate lawfully and ethically.
A compliance audit examines a business’s systems and processes to identify potential risks and ensure adherence to privacy regulations. While they are usually conducted by an independent third party, here’s a breakdown of the essential stages for businesses performing an in-house audit:
Remember to conduct these at least once a year, and to keep a record of compliance audit reports.
This will not only help maintain compliance with privacy regulations but also enable you to proactively identify and mitigate potential risks as your business grows, as employees turn over, and as laws evolve.
To help, you could even consider scheduling audits semi-annually or quarterly for high-risk areas or after significant changes in operations, such as the introduction of new technologies or processes.
Simply put, the compliance audit process is a great way to build a culture of compliance within your organization, and to hammer home the responsibility that all employees have to carry out their work with good data discipline.
Prioritizing privacy when selecting software can drastically reduce the burden of compliance audits. This is particularly true of website analytics, which is often a focal point in audits due to the volume of customer data collected.
TWIPLA is an ideal choice.
We’re a privacy-perfect website intelligence platform built around privacy-by-design principles, which includes:
These features mean our platform can be used in compliance with all global data protection laws by default, without creating any compliance responsibilities. This makes TWIPLA a powerful tool for simplifying compliance and reducing the manual workload during audits.
But it’s equally important to apply this privacy-first mindset to all your software choices, from customer relationship management systems to cloud storage, to build a robust compliance framework.
By embedding privacy across all your operations, you not only simplify the audit process but also foster a proactive culture of data protection, making it easier to maintain regulatory standards across the board. With the right tools in place, audits become less about finding and fixing issues and more about demonstrating that your systems are already compliant.
A compliance audit can be done in house, or by an independent third party. It evaluates a business’ operational adherence to both its own internal policies and legal regulations, particularly those related to data protection, privacy, and industry-specific standards.
Compliance audits are important because they allow businesses to identify risks before they escalate, ensure regulatory compliance, and safeguard sensitive data. This ultimately helps them to avoid penalties for breaches or non-compliance, and maintain customer trust.
Data management is a legal requirement and any business that collects, processes, or stores personal information should carry out a compliance audit at least once per year to assess their internal processes and compliance with data privacy laws.
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